The central bank doves are back with a vengeance following a much lower than expected US JOLTS print, and on the back of a surprisingly dovish comment from the otherwise… hawkish Isabel Schnabel of the European Central Bank (ECB).
JOLTS
Yesterday’s JOLTS data showed that US job openings fell below 8.8 million in October – though strikes at Detroit’s big three automakers may partly explain why job openings fell so sharply. But whatever the case, the US had a lot fewer job openings in October than in the previous month, and that has added to the idea that the US labor market is continuing to loosen.
Again, the October numbers should be taken with a pinch of salt, as they were certainly affected by the strikes, and the November numbers could also be affected by the distortions of October – meaning that we could see some robust numbers after a depressed October. Overall, however, the US labor market was already showing signs of cooling before the strikes, and this week’s numbers may not be representative of the underlying trend. However, the U.S. payrolls report will be crucial as the Federal Reserve (Fed) approaches a policy pivot.
Today, ADP is expected to print 130,000 private sector jobs added in the U.S. last month, and the Atlanta Fed’s GDP forecast is expected to point to a sharp decline in Q4 growth to 1.2% from over 5% printed last quarter. If that’s the case, the Fed doves will remain in charge of the market, but the everything rally is likely to turn into a… bond rally, as we are now at a point where bond optimism can only be sustained with increased recession probabilities, which doesn’t bode well for equity appetite.
EUR/USD Slips into Bearish Consolidation Zone
The ECB’s Isabel Schnabel, who has been one of the most hawkish voices during the bank’s recent tightening campaign, started to sound dovish this week. Schnabel said inflation is slowing at a “remarkable” pace. The yield on the 10-year Bund melted to 2.23%, a level last seen in June.
Yes, but Schnabel also said that officials have been “surprised in both directions” many times. Traders will now sell the euro on dovish ECB expectations until inflation proves otherwise. The EURUSD dropped below the 1.08 level and to the 100 DMA, where it found some support. After yesterday’s selloff below the major 38.2% Fibonacci retracement, the pair is now in the bearish consolidation zone, with increasing bearish momentum suggesting that the selloff could continue to 1.07/1.0730. Note that the market may be able to absorb a further sell-off at current levels, as the RSI is now in the mid-range: we are far from oversold conditions.
Gold finds support near $2000 an ounce as falling U.S. yields and waning appetite for equities continue to drive capital into the precious metal.
Crude oil continues to be sold off in a lower-high-lower-low pattern, paving the way for another fall to the $70 target, and China is not happy as Moody’s cut its outlook on Chinese sovereign bonds to negative, warning that the country’s use of fiscal stimulus to support local governments and the spiraling property downturn pose risks to its economy. China’s CSI 300 fell to its lowest level in nearly 5 years, and nothing is helping to undo the damage that government crackdowns and the COVID-zero policy have done to investor confidence. China’s stimulus measures prompted Moody’s to lower its sovereign debt outlook, but they haven’t brought investors or homebuyers back into the market.
